International Finance and Income Convergence: Europe is Different

Author/Editor:

Daniel Leigh ; Abdul d Abiad ; Ashoka Mody

Publication Date:

March 1, 2007

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Recent studies conclude that the ongoing global financial integration may have had little or no value in advancing economic growth, especially in poor countries. Capital is often found to flow "uphill" from poor to rich countries. And, when it does flow into the less developed economies, it is negatively correlated with growth, calling into question the desirability of foreign capital. In this paper we report that Europe-including the new member states of the European Union-provides a counterexample to these global anomalies. With increasing financial integration, capital in Europe has traveled "downhill" from rich to poor countries, and has done so with gathering strength. These inflows have been associated with significant acceleration of income convergence.

Series:

Working Paper No. 2007/064

Subject:

English

Publication Date:

March 1, 2007

ISBN/ISSN:

9781451866285/1018-5941

Stock No:

WPIEA2007064

Pages:

36

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